Sainsbury’s and Morrisons to repay £714m business rates relief

Morrisons was the first of Tesco’s competitors to move, announcing it would return £274m worth of relief last night. Sainsbury’s followed suit in a note to the City this morning, announcing it would hand back £440m in relief. 

In their statements, both Sainsbury’s and Morrisons claimed to have been considering handing back the relief for some time, but both grocers appear to have had their hands forced by Tesco’s announcement yesterday morning. 

Between the three grocers, they have now committed to handing back some £1.3bn in tax breaks. 

As of the time of publishing, Asda is the only remaining of the big four yet to issue a statement on what it plans to do with its business rates relief. 

In terms of the financial impacts of the decisions, Sainsbury’s said it expected underlying profit before tax for March 2021 to be at least £270m and to exceed £586m by March 2022. 

Morrisons, however, struck a more sombre tone, saying it expected direct costs associated with Covid-19 to be £270m – £40m more than the estimate at its interim results – and “significantly higher than the £230m in-year business rates relief”.

Morrisons said it planned to pay a special dividend to shareholders of 4p per share in January, while Sainsbury’s has also said it would prioritise payment of dividends to shareholders over net debt reduction. 

Tesco is set to return some £5bn to shareholders before the business rates relief ends in March following the £10bn disposal of its Malaysian and Thai business. 

Sainsbury’s boss Simon Roberts said: “We have been proud to play our part in feeding the nation in this extraordinary year and every one of our colleagues has gone above and beyond to support each other, our customers and our communities.

“While we have incurred significant costs in keeping colleagues and customers safe, food and other essential retailers have benefited from being able to open throughout.

“With regional restrictions likely to remain in place for some time, we believe it is now fair and right to forgo the business rates relief that we have been given on all Sainsbury’s stores. We are very mindful that non-essential retailers and many other businesses have been forced to close again in the second lockdown and we hope that this goes some way towards helping them.

“We remain focused on delivering the plan we set out at our half-year results. We continue to urge the government to review the business rates system to create more of a level playing field between physical and online retailers.”

Morrisons boss David Potts said: “We are grateful for the government’s swift action at the start of the pandemic, which enabled the whole sector to face squarely into the challenges and disruption caused by Covid-19.

“Throughout this difficult period Morrisons has done its best work to look after our colleagues, our customers and key workers, to feed the nation, to protect both the vulnerable and our smaller suppliers and to play a full and leading role in meeting the enormous challenges that the Covid-19 pandemic brought. I’m exceptionally proud of the way that the whole business has responded.”

The decisions of Tesco, Sainsbury’s and Morrisons will also likely ratchet up pressure on the discounters and other grocers like the Co-op. 

Retail Week understands that Waitrose, the food arm of John Lewis Partners, will not be returning any business rates relief from this year as it does not intend to pay a bonus to staff.